Co-ordination in SC and Bullwhip Effect Bullwhip Effect Bullwhip Effect

Introduction
Supply Chain coordination improves if all
stages of the chain take actions that together increase total supply chain profits

The fundamental challenge today for

supply chains to achieve coordination in spite of multiple ownership and increased product variety

What supply chain coordination demands?

This requires each stage of the

supply chain to take into account the impact its actions have on other stages

Role of coordination

Lack of coordination occurs if

OR

different stages of the chain have objectives that conflict

Information moving between stages

gets delayed and distorted

 Each stage has a different owner As a result each stage tries to

maximize its own profits

Resulting in actions that diminish

the total supply chain profits unlike a coordinated supply chain

The Bullwhip effect

Bullwhip effect defined How bullwhip effect occurs Impact of the bullwhip effect An example

What is bullwhip effect?

The bullwhip effect is the uncertainty

caused from distorted information flowing up and down the supply chains

 Bullwhip effect is observed when

fluctuations in orders increase as one moves up from the supply chain from retailers to wholesalers to manufactures to suppliers

Increased inventories- Poorer product

availability- Drop in Profits

Who is affected?
Nearly all industries are affected Firms that experience large variations in
demand are at risk

Firms that depend on suppliers,

distributors and retailers

Impact of the Bullwhip effect

Manufacturing cost Inventory cost Replenishment lead time Transportation cost Labor cost for shipping and receiving Level of product availability Relationships across the supply chain Profitability

Bullwhip effect- an example

Company X produces soaps for sale

Customer demand for the company becomes stagnant

Retailers offer a sales promotion to boost sales for the company

Retailers fail to notify manufacturers about sales promotion

Meanwhile the demand for the soaps increase

But there are problems because of the gap in communication

Therefore, to meet the demand Company X increases inventory to allow for increased manufacturing of Soaps

The company also informs suppliers to meet the increased demand

Lastly, suppliers increase inventory to meet the demand

Key Point
The Bullwhip effect reduced the

profitability of the supply chain by making it more expensive to provide a given level of product availability

HP- example

Fluctuations in orders increased significantly Moved from the resellers up the supply chain to the printer division to the integrated circuit division But when product demand showed variability Orders placed with the integrated division were much more variability Consequently HP found it difficult to meet orders on time and cost increased

Relationships across supply chains

Negatively impacts performance at every stage Hurts relationships between different stages of the supply chain Tendency to assign blame to other stages of supply chain because each stage is doing the right and best Loss of trust between between stages of the supply chain makes any potential coordination efforts more difficult

Thank You